Press Release

VIS Downgrades Entity Ratings of Nadeem Textile Mills Limited

Karachi, April 11, 2025: VIS Credit Rating Company Limited (VIS) downgrades entity ratings of Nadeem Textile Mills Limited (‘NATM’ or ‘the Company’) to ‘BBB+/A3 (‘Triple B Plus/A Three) from 'A-/A2' (‘Single A minus’/’A Two’). Medium to long term rating of 'BBB+' indicates Adequate credit quality; Protection factors are reasonable and sufficient. Risk factors are considered variable if changes occur in the economy. Short term rating of 'A3' indicates fair likelihood of timely repayment of short-term debt obligations with satisfactory liquidity factors. Outlook on the assigned ratings is ‘Negative’. Previous Rating action was announced on January 30, 2024.

NATM was incorporated in Pakistan on July 15, 1984, as a public limited company and its shares are listed on Pakistan Stock Exchange (PSX). The principal activity of the Company is manufacture and sale of yarn. NATM has a registered office in Karachi. It has two units of manufacturing facilities, one in Karachi and the other in District Jamshoro.

Assigned ratings incorporate the business risk profile of Pakistan’s textile spinning sector, which remains influenced by demand cyclicality, competitive pressures, regulatory challenges, and energy sensitivity. The sector serves as a critical upstream segment in the textile value chain, with performance closely linked to broader economic conditions. Cotton production remained below domestic demand requirements despite a marginal improvement in cultivation area, as shifting preferences among farmers toward higher-margin crops limited recovery. Export volumes saw limited growth, with changes in global procurement patterns and political uncertainty contributing to the diversion of export orders to regional competitors. However, the impact on the Company’s sales remained contained due to product focus on coarse yarn, which continued to find demand. The withdrawal of the Export Facilitation Scheme and transition from the Final Tax Regime to the Normal Tax Regime have reduced cost competitiveness of locally produced yarn. Regional competition continues to pose structural challenges, with limited product diversification constraining market capture. Energy tariffs and regulatory changes have added to operating cost pressures, while high energy costs and rising wages have further compressed margins. Ratings are underpinned by the availability of sponsor backing, as indicated by the management. It has been communicated that, in the event of any financial requirement or funding gap, support from the directors would be made available to the Company.

Ratings also take into account the financial risk profile with significant stress noted on profitability, coverage and liquidity all the while capitalization metrics have also weakened. The Company reported revenue growth during FY24. Nevertheless, heightened input costs, particularly energy and raw material expenses, alongside limited pricing flexibility due to heightened competition from imported yarn, have stressed gross margins. The impact of these cost pressures is exacerbated by higher financial expenses due to elevated domestic interest rates, resulting in a decline in net profitability. The company's capitalization profile has weakened significantly due to the erosion of equity, reflecting the impact of losses on retained earnings. Concurrently, gearing and leverage ratios have increased, indicating higher financial risk. The company's liquidity position is under strain, with debt coverage metrics weakening, highlighting challenges in meeting financial obligations.

Going forward, the ratings and outlook will remain sensitive to improvement in the condition of the Company’s financial risk profile particularly the ability of the company to improve its margins and improve its capital structure.

For further information on this rating announcement, please contact at 021-35311861-64 or email at info@vis.com.pk.





Applicable Rating Criteria:
Industrial Corporates
https://docs.vis.com.pk/docs/CorporateMethodology.pdf
VIS Issue/Issuer Rating Scale
https://docs.vis.com.pk/docs/VISRatingScales.pdf

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